ユナイテッドアローズ（7606） – [Delayed] Corporate Governance Report

TRANSLATION FOR REFERENCE PURPOSE ONLY This is a translation of the original release in Japanese. In the event of any discrepancy, the original release in Japanese shall prevail.[Delayed] Corporate Governance Report Last Update: December 24, 2021 UNITED ARROWS LTD. Yoshinori Matsuzaki, Representative Director, President and CEO Contact: IR and Corporate Planning Department +81-3-5785-6637 Securities Code: 7606 http://www.united-arrows.co.jp/en/ The corporate governance of UNITED ARROWS LTD. (the “Company” or “we”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile andOther Basic Information1. Basic ViewsAt the time of its founding in October 1989, UNITED ARROWS LTD. defined its founding spirit as “contributing to society by setting new standards of Japanese lifestyle.” The essence of this spirit has been maintained and its expressions updated to better match the times so that it can continue to function as the basis for the actions of all directors and employees as our Company Policy. In addition, we have defined our promise to society and the creation of value for five distinct stakeholders as key features of our Policy Structure. The five distinct stakeholders for which value is to be created are customers, employees, business partners, society, and shareholders. In this regard, the Company’s mission is to increase value for all stakeholders. In order to maintain the proper mindset that will allow us to realize our Company Policy, we put in place the Code of Conduct. This code expresses how we should think and act to achieve our stated goals. Recognizing the critical need to build a transparent and fair management framework, along with a structure under which we are capable of making timely and bold decisions, we are committed to continuously strengthening and expanding our corporate governance capabilities and functions in order to realize our Company Policy, fulfill our promise to society, and create value for five distinct stakeholders. Through these means, we are working to enhance our corporate value on a long-term and continuous basis. To enhance corporate governance continuously, the Company develops and discloses its corporate governance policy. http://www.united-arrows.co.jp/corporate/governance.html (Japanese only) [Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated The descriptions are based on the code after the revision in June 2021 (including the content for listed companies in the prime market except for the latter part of the Supplementary Principles 3.1.3). 1 Explanation on business portfolio policies and status of revision in establishing and disclosing business strategies, etc. In order to respond to radical changes in the external environment during the COVID-19 pandemic, the Company fully revised the content of the medium-term management plan (from the fiscal year ended March 2021 to the fiscal year ending March 2023) which was established before the COVID-19 pandemic. The revised medium-term management plan was resolved at the Board of Directors in November 2020, and was disclosed externally. The business strategies, etc. that were established in the medium-term management plan, however, are positioned as time-limited strategies to focus mainly on elimination and consolidation, etc. for overcoming the COVID-19 pandemic. Currently, under the new management framework launched in April 2021, the Company has been continuously deliberating on the long-term corporate vision. In the deliberation, the Company is also discussing an ideal business portfolio domain, etc. for regrowth. There is no basic policy on the business portfolio at the moment. Going forward, the Company plans to disclose a new medium-term management plan based on these discussions in May 2023. [Disclosure Based on the Principles of the Corporate Governance Code] Updated [Principle 1.3 Basic Strategy for Capital Policy] Sustainable growth and improving business results are our top priority toward realization of Our Promise—Our Five Core Values stated in our Company Policy. The Company will use cash generated from earnings growth to invest for medium- to long-term growth, while at the same time improving its capital policy by paying robust dividends and carrying out share buybacks. We aim to support business activities by implementing a flexible financial/capital policy, while at the same time creating value for all stakeholders in “Our Five Values” by increasing capital efficiency. [Principle 1.4 Cross-Shareholdings] The Company sold all shares it held as cross-shareholdings in 2015 when Japan’s Corporate Governance Code was enacted and currently does not hold any such shares. Going forward, if we decide to hold shares in another company as cross-shareholding, judging that the cross-shareholding is appropriate after considering its purpose, benefits (e.g., dividends, benefits from associated transactions), capital cost and other factors comprehensively, the Company will develop and disclose specific standards for exercising voting rights for the cross-shareholding. In the case where the company holding the Company’s shares as a cross-shareholding (cross-shareholding shareholder) shows an intention to sell the shares, the Company will not disturb such sales. The Company will not engage in transactions that lack economic rationale with the company holding the Company’s shares as a cross-shareholding (cross-shareholding shareholder). [Principle 1.7 Related Party Transactions] If the Company engages in any transaction with its related party (director or major shareholder of the Company), the Company will obtain prior approval of its Board of Directors 2 for the transaction so as not to harm the interests of the Company or the common interests of its shareholders. The Company will disclose related party transactions in accordance with the Companies Act, Accounting Standard for Related Party Disclosures, and other related provisions. [Principle 2.6 Roles of Corporate Pension Funds as Asset Owners] The Company has a defined contribution pension system, and its human resources division conducts awareness-building activities for stable asset formation by employees. [Supplementary Principles 2.4.1] ■View on ensuring diversity in hiring, etc. of core resources The Company is working to increase productivity while ensuring job satisfaction for each employee, recognize diversity and establish an organizational culture and labor environment that respect individuals. – Diversity on employment category More than 70% of the employees are mid-career employees, and the percentage of mid-career employees in the core resources is also at the same level. The diversity of new graduates and mid-career employees for positions from store sales to store managers, managers and officers is sufficiently ensured, and the Company will maintain the current level going forward. – Gender diversity The ratio of female employees that are in a section head or higher was 18% as of April 2021. The Company has established a goal by manager hierarchy to raise the percentage to 30% as of the end of March 2026. The Company confirms the number of managers by gender at the annual manager appointment, and advocates achieving the goal for appointed managers in five years. The appointment goal and the actual results of annual appointment of female managers have been disclosed on the Company website. Together with ensuring diversity, the Company invests in education where both male and female employees can play active roles to lead the enhancement of the corporate value. The Company website https://www.united-arrows.co.jp/csr/about/value_02.html (Japanese only) – Diversity on nationality Since the Company’s current major market is within Japan, all core resources are Japanese. Therefore, the Company does not set a goal of appointing, etc. foreign employees to core resources. However, UNITED ARROWS TAIWAN LTD., an overseas subsidiary of the Company, works to ensure there is management other than the President with locally hired employees. Going forward, together with the overseas expansion scenario, the Company will consider appointing, etc. locally hired employees to core resources. 3 ■Policies on resource development and internal environment establishment Policies on resource development and internal environment establishment as well as their implementation statuses at the Company are disclosed on the Company website. The Company website https://www.united-arrows.co.jp/csr/about/value_02.html (Japanese only) [Principle 2.6 Demonstrating the Function as Asset Owner of Corporate Pension] The Company has a defined contribution pension system. For employees to create stable assets, the Human Resources Department engages in educational activities regarding the system. [Principle 3.1 Full Disclosure] (1) Company objectives (e.g., company policy), business strategies and business plans Company policy: our “Policy Structure” is posted on the Company website. Business strategy: UNITED ARROWS Group’s Medium-Term Vision and business strategies/measures to achieve the Vision are published on the Company website and in documents such as financial results, and securities report. Business plan: information such as management policy and performance targets are published in financial results, presentation materials of earnings announcements and other documents. (2) Basic views and guidelines on corporate governance based on each of the principles of the Code (original) At the time of its founding in October 1989, UNITED ARROWS LTD. defined its founding spirit as “contributing to society by setting new standards of Japanese lifestyle.” The essence of this spirit has been maintained and its expressions updated to better match the times so that it can continue to function as the basis for the actions of all directors and employees as our Company Policy. In addition, we have defined our promise to society and the creation of value for five distinct stakeholders as key features of our Policy Structure. The five distinct stakeholders for which value is to be created are customers, employees, business partners, society, and shareholders. In this regard, the Company’s mission is to increase value for all stakeholders. In order to maintain the proper mindset that will allow us to realize our Company Policy, we put in place the Code of Conduct. This code expresses how we should think and act to achieve our stated goals. Recognizing the critical need to build a transparent and fair management framework, along with a structure under which we are capable of making timely and bold decisions, we are committed to continuously strengthening and expanding our corporate governance capabilities and functions in order to realize our Company Policy, fulfill our promise to society, and create value for five distinct stakeholders. Through these means, we are working to enhance our corporate value on a long-term and continuous basis. To enhance corporate governance continuously, the Company develops and discloses its corporate governance policy. 4 http://www.united-arrows.co.jp/corporate/governance.html (Japanese only) (3) Board policies and procedures in determining the remuneration of the senior management The Company positions director remuneration as incentive for achieving sustainable growth and higher corporate value over the medium to long term in line with the Company Policy. The remuneration of executive directors consists of a monthly fixed “base compensation,” “bonuses” that is linked to single-fiscal-year business performance, and “stock-based compensation” that is set according to the level of achievement against the medium-term For base compensation, a director remuneration table according to position is set out by referring to such information as industry standards and the results of director remuneration surveys by external research organizations. Remuneration recommendations are calculated according to the roles and responsibilities of each Director within the corresponding range in and directors; business plan. the table. For bonuses, after putting forward a proposal for the total amount of director bonuses, a proposal for allocations of bonuses to individual executive directors is determined. The proposal for the total amount of bonuses is determined based on a comprehensive review of management ratios such as consolidated operating cash flow and ROE, in addition to the degree of meeting the initial plan figures for operating performance, especially consolidated operating income, over any given single fiscal year. Allocations to individual directors are determined in such a way that a higher-ranking director in the director remuneration table will have a higher bonus coefficient (i.e., the ratio of bonuses to the sum of base compensation and bonuses). The objective of this is to strengthen their commitment to achieving management targets over any given single fiscal year. In principle, no bonus will be paid if consolidated operating income is below a certain level against the initial earnings forecast. Stock-based compensation in the form of “restricted shares” is granted to executive directors with the objective of sharing value with shareholders and establishing a remuneration framework that contributes to higher corporate value over the medium to long term. Transfer restrictions on the restricted shares will be removed if targets under the medium-term management plan are met within a fixed transfer restriction period. The shares are to be unrestricted according to the degree of achieving the targets. Bonuses and stock-based compensation will not be paid to non-executive directors. Only base compensation will be paid to them according to their individual roles and responsibilities. The remuneration of each director who is not an Audit and Supervisory Committee member is determined in accordance with the policy described above by resolution of the Board of Directors within a range set by approval of a Shareholders Meeting. The Nomination and Compensation Committee is consulted before determining the remuneration. The remuneration of each director who is an Audit and Supervisory Committee member is determined in accordance with the policy described above by unanimous resolution of the Audit and Supervisory Committee within a range set by approval of a Shareholders Meeting. In addition to the above, the Nomination and Compensation Committee examines the appropriateness of the policy, structure, and remuneration table and calculation rules on director remuneration and puts forward revision proposals. 5 (4) Board policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for directors and audit and supervisory board members Our policy on the nomination of director candidates (excluding outside directors) is to nominate those who are committed to achieving goals and highly competent in making management decisions based on their experience, insight and expertise to contribute to sustainable growth and higher corporate value over the medium to long term in line with the Company Policy (hereinafter “Nomination Policy 1”). Our policy on the nomination of outside director candidates is to nominate those who have abundant experience, deep insight and a high level of expertise to fulfill the function of control and oversight over management from independent standpoints while contributing to sustainable growth and higher corporate value over the medium to long term in line with the Company Policy (hereinafter “Nomination Policy 2”). As for nomination procedures, the nomination of candidates for directors who are not Audit and Supervisory Committee members is determined by resolution of the Board of Directors in accordance with Nomination Policies 1 and 2. The Nomination and Compensation Committee is consulted in making the decision. Gender, nationality and other such factors of candidates are not considered. The nomination of candidates for directors who are Audit and Supervisory Committee members is determined by resolution of the Board of Directors with consent of the Audit and Supervisory Committee in accordance with the policy described in (3) above as well as Nomination Policies 1 and 2. Gender, nationality and other such factors of candidates are not considered. In case of circumstances that warrant dismissal of a senior management member such as significantly lacking management capability or engaging in a serious wrongdoing, the Board of Directors or the chair of the Board (or a person acting in his or her place according to the predetermined order if the chair is the subject person) will consult the Nomination and Compensation Committee. Fully respecting recommendations by the Committee, the Board of Directors will determine whether the dismissal is necessary. (5) Explanations with respect to the individual appointments/dismissals and nominations in the Board’s appointment/dismissal of the senior management and the nomination of candidates for directors and audit and supervisory board members based on (4) Explanations on appointments/dismissals and nominations of directors (6 inside directors and 3 outside directors) are provided in the documents attached to Corporate Governance Policy of the Company. The following is the link to the Corporate Governance Policy. https://www.united-arrows.co.jp/ir/strategy/governance.html (Japanese only) [Supplementary Principles 3.1.3] – Initiatives on sustainability The Company establishes a Sustainability site within its corporate website. The website posts a materiality identification process, promotion system, specific initiatives on creating five values (for customers, employees, business partners, society and shareholders) and interviews with our staff who actually promote 6 each initiative. By posting this information, with a sense of consistency with our business strategy and business challenges, the Company discloses and provides information in an easy to understand, specific manner. Sustainability site https://www.united-arrows.co.jp/csr/index.html (Japanese only) – Investment, etc. in human capital As one of the Company Policy Structures, the Company has made a promise to society and pledged to create value for five distinct stakeholders. These are customers, employees, business partners, society and shareholders. In this regard, the Company’s mission is to increase value for all stakeholders. The concept below for creating value for employees is included in the disclosed Code of Conduct. The Company is making investments in human capital based on this code. ■Concept of creating employee value in the Code of Conduct (excerpt) “In order to realize the Company Policy, employees of the UNITED ARROWS Group will advance towards high goals, respect colleagues, learn from and improve each other, overcome severe situations to achieve results and increase productivity. For such employees, the Company hopes to be one that continuously provides them with places to demonstrate their ability, provide them with growth opportunities, and reward them with high compensation in accordance with their performance. Furthermore, the Company aims to be a company where everyone can find their true selves and become happy.” ■Details of the investment in human capital are described in the Company Sustainability site “Sustainability of UNITED ARROWS – Creating Employee Value.” https://www.united-arrows.co.jp/csr/about/value_02.html (Japanese only) – Investment, etc. in intellectual property The Company sets out below in its Sustainability site to protect intellectual property rights. In addition to complying with the below, continuous investments in human capital and management resources are made in order to develop and maintain an appropriate management system. ■Protection of intellectual property rights (excerpt) “Many of the products and services that we handle are associated with intellectual property rights including trademark rights and copyrights. The Company establishes internal rules such as ‘Regulations on Intellectual Property Rights Management’ to develop an appropriate management system. As for a specific management system, in order to quickly respond to questions raised from staff of the Product Procurement Department, etc., under the executive officer in charge, the Legal Department will be the contact point to make an effort to protect our rights and to prevent the infringement of rights of third parties. As a measure to thoroughly prevent infringement of rights, the Company established an internal review flow for product designs that may infringe on the rights of third parties. The Company disseminated the flow to the Product Procurement Department, 7 etc. The Company firmly established operations such as to decide on whether or not to advance with a project based on legal insights from the Legal Department and business practice insights from the Fashion Marketing Department. By correctly understanding and respecting creativity, we at the Company promote initiatives to provide products and services for our customers.” Scope of Matters Delegated to the Management In addition to what is provided for by laws and regulations and the Articles of Incorporation, resolution by the Board of Directors is required for deciding/revising its Policy Structure, as well as for material management matters with quantitative thresholds set especially for matters that may have a significant impact on earnings results, such as investments and loans. Matters to be judged/decided by the Management Committee and other approvers are stipulated in the “list of approvers,” thereby setting them out and clarifying the scope of matters delegated to the management. [Principle 4.9 Independence Standards and Qualification for Independent Directors] The Company sets forth the Independence Determination Standards for Independent Officers as follows and deems that any independent officers who do not fall under any of the items below are sufficiently independent from the Company. 1. A major shareholder of the Company (Note 1) or an executive thereof 2. A party whose major client or supplier is the Company (Note 2) or an executive thereof 3. A major client or supplier of the Company (Note 3) or an executive thereof 4. A major lender of the Company (Note 4) or an executive thereof 5. A consultant, accounting professional or legal professional who receives a large amount of money or other properties (Note 5) from the Company or its subsidiaries other than executive remuneration (if the recipient is a corporation, partnership or any other type of organization, any person who belongs to that organization) 6. A person who received from the Company or its subsidiaries more than 10 million yen in donations in the most recent fiscal year of the Company (if the recipient is a corporation, partnership or any other type of organization, any person who belongs to that organization) 7. An executive of a company in which an executive of the Company or its subsidiaries is currently appointed as outside director or outside audit and supervisory board member, or an executive of a parent or subsidiary of such a company 8. A person who fell under any of items 1 through 7 above in the past three years. 9. An immediate family member (spouse or a relative within the second degree of kinship) of any of the persons listed in 1) through 3) below. However, persons who are not important are excluded. 1) Persons listed in items 1 through 8 above. 2) An executive of a subsidiary of the Company 3) A person who fell under 2) or was an executive of the Company in the past three years. Note 1: A “major shareholder” means a shareholder who directly or indirectly holds 10% or more of the total voting rights on shares of the Company. 8 Note 2: A “party whose major client or supplier is the Company” means a client or supplier that received payments from the Company or its subsidiaries totaling over 100 million yen or 2% of consolidated net sales of the client or supplier group, whichever is higher, in the most recent fiscal year of the client or supplier. Note 3: A “major client or supplier of the Company” means a client or supplier that made payments to the Company or its subsidiaries totaling over 2% of consolidated net sales of the Company group in the Company’s most recent fiscal year. Note 4: A “major lender of the Company” means a lender whose loans to the Company or its subsidiaries amounted to over 2% of consolidated assets of the Company group as of the last day of the Company’s most recent fiscal year. Note 5: A “large amount of money or other properties” means those whose average total amount exceeds 10 million yen in the Company’s most recent three fiscal years. Appropriate involvement and advice of independent outside directors by establishment of independent [Supplementary Principles 4.10.1] Nomination Committee and Compensation Committee – The Nomination and Compensation Committee composed of all independent outside directors and the Representative Director (President and CEO) is established to strengthen the independence/objectivity and accountability of Board functions related to appointment and compensation of directors. The majority of the Nomination and Compensation Committee members are independent outside directors. The Nomination and Compensation Committee provides advice including viewpoints on diversity such as gender and skills. – An outside director will become the chairperson of the Nomination and Compensation Committee (in case of multiple outside directors, the chairperson will be determined upon mutual discussion). – The Nomination and Compensation Committee is held quarterly in principle, and is to be convened by the – The Nomination and Compensation Committee provides opinions to the Board of Directors on the matters – Appointment of each director candidate and his/her dismissal – Appointment/dismissal (election or removal) of senior management (refers to executive directors including the Representative Director (President and CEO); the same applies hereinafter) – Whether or not to individually appoint or transfer candidates for executive officers and directors of affiliated – Matters on compensation, etc. of directors (excluding those who are Audit and Supervisory Committee chairperson as necessary. below. companies members) – Matters on successor plan of Chief Executive Officer (CEO) – Other matters that the Board of Directors individually consults to the Committee 9 View on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size The Company chooses the corporate governance structure of the Company with the Audit and Supervisory Committee with the aim of strengthening the Board’s monitoring function and expediting decision-making through appointment of outside directors who do not execute business and appropriate delegation of authority. Our policy is to keep the number of Board members to the minimum required for ensuring Board functions— no more than six directors who are Audit and Supervisory Committee members, and no more than eight directors who are not members of the Audit and Supervisory Committee members. Our policy for outside directors is to have multiple persons who have abundant experience, deep insight and a high level of expertise for the position. We have a system of assigning areas of responsibility to executive directors so that they can effectively fulfill their roles and responsibilities. It is our basic policy that the Board of Directors should be composed in ways to achieve a balance between diversity, including aspects of gender, internationality, work history, age and appropriate size. Internationality considered by the Company not only refers to differences in nationality but also covers persons with abundant international business experience. The composition of the Board of Directors of the Company and the requirements and skills of the executive directors and executive officers are explained in the supplementary materials of the Corporate Governance Policy of the Company. The following is the link to the Corporate Governance Policy. https://www.united-arrows.co.jp/ir/strategy/governance.html (Japanese only) Positions at other listed companies served by directors The Company has confirmed that the additional positions held by our outside directors at other companies are to the extent that allows them to devote sufficient time and effort to appropriately fulfilling their roles and responsibilities at the Company. Any director positions at other listed companies served by our directors are disclosed as “significant concurrent positions outside the Company” in the Notice of Ordinary General Meeting of Shareholders each year. https://www.united-arrows.co.jp/en/ir/stockinfo/notification.html Analysis and evaluation on the effectiveness of the board as a whole The Company annually carries out self-evaluation of directors by such means as conducting a questionnaire survey on items that include the effectiveness of the composition, deliberation, operation and other aspects of the Board of Directors and the quality of information provided to the Board. In reference to the content of 10 evaluation, the Company adopts a process in which it periodically verifies the effectiveness of the Board as a whole and takes measures to improve issues and reinforce the operation, and discloses an overview of the results. In the fiscal year ended March 2021, in addition to the above questionnaire, we conducted interviews with Directors as necessary to further obtain details of the issues that were identified. The result of these reviews showed there were no major problems with the effectiveness of the Board of Directors. As for enhancing deliberation on the “Succession Plan” and securement of time for deliberation at the entire Board meeting, which were raised as issues to be addressed last year, they have both been evaluated as seeing a significant improvement. In addition, as for the active deliberation on strategy challenges such as the long-term vision after the COVID-19 pandemic, which was also raised as an issue to be addressed last year, the Company’s ideal dialogue format of the Board of Directors was discussed at the Board, assuming there is information asymmetry with outside directors. From these discussions, there were opinions that securing diversity in manager positions including senior management is a challenge. Based on the above, as the issues to address for the future, the Company recognized that it is necessary to: (i) plan deliberations to discuss Board diversity, etc. as ongoing themes; and (ii) ensure flexible and non-stylistic opinion exchange opportunities with outside directors. The Company will make the necessary responses to the recognized issues where necessary, and will aim to enhance the effectiveness of the Board of Directors. In light of the above, we have recognized the following issues to be addressed going forward: (1) enhance deliberations on succession planning; (2) secure sufficient time for deliberations by the Board of Directors; and (3) highlight important items for deliberation, such as medium- to long-term strategies in response to changes in the business environment caused by the novel coronavirus. We will take the necessary measures as appropriate to address issues recognized and aim to further improve the effectiveness of the Board. In the fiscal year ending March 2021, we drafted a next-generation management system as part of succession planning with the appropriate involvement of the Nomination and Compensation Committee, and in November 2020, the Board of Directors resolved and disclosed personnel changes in Directors based on the above. In addition, the Board of Directors continued discussions on the revision of the medium-term management plan in response to changes in the business environment caused by the novel coronavirus, reached a resolution at the Board meeting in November 2020, and provided an explanation to external parties. Training policies for directors Our training policies for directors are as follows. (1) Training programs by experts on economy, finance, legal and other areas necessary for business operation of the Company are provided as necessary. (2) Separately from the above, explanations are provided on the Company’s philosophy, business strategy, and business activities and there is a tour of major facilities at the time a person assumes the office of director. 11 (3) Full-time Audit and Supervisory Committee members obtain the necessary information by regularly attending multiple expert committees and share to other Audit and Supervisory Committee members as necessary. In addition, directors are able to receive external training at the expense of the Company to acquire the knowledge needed for fulfilling their roles and responsibilities. [Principle 5.1 Policy for Constructive Dialogue with Shareholders] and [Principle 5.2 Establishing and Disclosing Business Strategies and Business Plans] The Company aims to improve the soundness of corporate management and create shareholder value by increasing the transparency of its management through active IR operations and driving communication with its shareholders and investors. In addition, the Company works to enhance information disclosure by disclosing its medium-term management plan that shows its strategies as well as quantitative targets for profitability and capital efficiency (ROE), while striving to maintain and boost profitability by establishing investment/exit standards based on capital cost. The Company establishes and discloses Disclosure Policies for “constructive dialogue with shareholders and investors, and full disclosure.” Policies, establishment of systems and other matters on timely disclosure under the Companies Act, the Financial Instruments and Exchange Act and other laws and regulations are described in “Information Disclosure Criteria and Methods,” “Timely Information Disclosure Structure and Systems,” “Quiet Period,” and “Precautionary Notes Regarding Statements with Respect to Future Forecasts” in the Disclosure Policies. Policies, establishment of systems and other matters for constructive dialogue with shareholders and investors are described in “Comprehensive Communication,” “Pertinent Feedback on the Company’s IR Activities” and “Constructive Dialog with Shareholders and Investors” in the Disclosure Policies. The Company establishes and discloses its medium-term management plan (Medium-Term Vision) every three years. We strive for full disclosure by stating quantitative targets for profitability and capital efficiency (ROE), in addition to strategies, in the medium-term management plan. We set the ROE target at a value higher than capital cost recognized internally to increase corporate value over the medium to long term. To use cash from operating activities beneficially, the Company calculates, when making new investments in sales facilities or undertaking large-scale renovations, the number of years until investment recovery taking into account capital cost, the net present value (NPV) and internal rate of return (IRR). Investment decisions are made on condition that hurdle rates set by the Company are exceeded. If it is expected to be impossible for a new business to post a single fiscal year profit in three years and cover cumulative losses in five years, we will provide company-wide backup to the business to improve profitability and, if there is no possibility of improvement, consider exiting. *The link to the Disclosures Policies is as follows. https://www.united-arrows.co.jp/en/ir/strategy/disclosure.html *The document is attached as Attachment 2 of this Corporate Governance Policy. 12 826,800 2.90 2. Capital Structure Foreign Shareholding Ratio 20% or more but less than 30% [Status of Major Shareholders] Updated Name / Company Name Number of Shares Owned Percentage (%) Standing proxy: Tokyo Branch, The 719,600 3,094,500 2,856,200 2,488,400 2,407,000 2,000,000 589,400 527,400 428,000 The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) Osamu Shigematsu Yusaku Maezawa ADS Co., Ltd. STATE STREET LONDON CARE OF STATE STREET BANK AND TRUST, BOSTON SSBTC A/C UK LONDON BRANCH CLIENTS-UNITED KINGDOM Standing proxy: Tokyo Branch, The Hongkong and Shanghai Banking Corporation Limited (HSBC) NORTHERN TRUST CO. (AVFC) RE HCR00 Hongkong and Shanghai Banking Corporation Limited (HSBC) Tetsuya Iwaki THE BANK OF NEW YORK 13392 Standing proxy: Mizuho Bank, Ltd. Mitsubishi UFJ Trust and Banking Corporation Standing proxy: The Master Trust Bank of Japan, Ltd. Controlling Shareholder (except for Parent Company) Parent Company Supplementary Explanation Updated — None 13 10.86 10.02 8.73 8.45 7.02 2.53 2.07 1.85 1.50 1. In addition to the above, the Company holds 1,718,323 shares of treasury stock, which are excluded from the “Status of Major Shareholders” above. 2. The Amendment Report made available for public inspection on July 8, 2021 states that Mitsubishi UFJ Financial Group, Inc. and its joint holders Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ Kokusai Asset Management Co., Ltd. and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. owned the following shares as of June 8, 2020. However, the Company is unable to confirm the actual number of shares owned as of September 30, 2021, and therefore these firms are not included in the above status of major The content of the Amendment Report is as follows. Name or Company Name / Address / Number of Shares Owned / Percentage (%) Mitsubishi UFJ Trust and Banking Corporation / 1-4-5 Marunouchi, Chiyoda-ku, Tokyo / 960,300 shares / Mitsubishi UFJ Kokusai Asset Management Co., Ltd. / 1-12-1 Yurakucho, Chiyoda-ku, Tokyo / 118,700 Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. / 2-5-2 Marunouchi, Chiyoda-ku, Tokyo / 241,398 shares 3. The Change Report of Large-Volume Holdings made available for public inspection on October 6, 2021 states that Sumitomo Mitsui Trust Bank, Limited and its joint holders Sumitomo Mitsui Trust Asset Management Co., Ltd. and Nikko Asset Management Co., Ltd. owned the following shares as of September 30, 2021. However, the Company is unable to confirm the actual number of shares owned as of September 30, 2021, and therefore these firms are not included in the above status of major shareholders. The content of the Report of Large-Volume Holdings is as follows. Name or Company Name / Address / Number of Shares Owned / Percentage (%) Sumitomo Mitsui Trust Asset Management Co., Ltd. / 1-1-1 Shibakoen, Minato-ku, Tokyo / 920,400 shares / Nikko Asset Management Co., Ltd. / 9-7-1 Akasaka, Minato-ku, Tokyo / 2,091,800 shares / 6.92% shareholders. 3.18% shares / 0.39% / 0.80% 3.05% 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Tokyo Stock Exchange First Section From ¥100 billion to less than ¥1 trillion March Retail Trade 1,000 or more 14 Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Less than 10 Year Shareholder None 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling 5. Other Special Circumstances Which May Have Material Impact on Corporate Governance None 15 II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Audit & Supervisory Committee [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Appointment of Outside Directors Appointed Number of Outside Directors Number of Independent Directors Outside Directors’ Relationship with the Company (1) 1 year President 14 6 3 3 Name Attribute Company* Yukari Sakai From another company Hidehiko Nishikawa Academic Yusaku Kurahashi Lawyer * Categories for “Relationship with the Company” Outside Directors’ Relationship with the a b c d e f g h I. j k * “○” when the director presently falls or has recently fallen under the category; “ ” when the △director fell under the category in the past * “●” when a close relative of the director presently falls or has recently fallen under the category; “▲” when a close relative of the director fell under the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the Company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/audit g. Major shareholder of the Company (or an executive of the said major shareholder if the and supervisory board member shareholder is a legal entity) 16 h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only) i. Executive of a company in which the same outside directors/audit and supervisory board members are also appointed at the Company (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Other Outside Directors’ Relationship with the Company (2) Name Reasons for Appointment Audit and Designation Supplementary Supervisory as Explanation of Committee Independent the member Director Relationship Yukari Sakai ○ ○ — members) in the belief that she Ms. Sakai has experience as director and audit and supervisory board member at other companies, abundant finance-related knowledge, including expertise in financing and accounting matters, and various viewpoints from the perspective of diversity. The Company appointed her as outside director (Audit and Supervisory Committee would leverage her abundant experience and knowledge to execute the Company’s business and fulfill the function of control and oversight over management, and she was elected in the 31st Ordinary General Meeting of Shareholders. Ms. Sakai satisfies the Independence Determination Standards for Independent Officers set forth by the Company. 17 Name Reasons for Appointment Audit and Designation Supplementary Supervisory as Explanation of Committee Independent the member Director Relationship Hidehiko Nishikawa ○ ○ — Mr. Nishikawa has a wealth of business experience in the fashion and retailing industries, and as a university professor specializing in marketing, has developed global scholarly activities and has extensive academic knowledge. The Company appointed him as outside director (Audit and Supervisory Committee members) in the belief that he would leverage his experience and knowledge he has accumulated thus far to promote sound and efficient operation at the Company, and he was elected in the 31st Ordinary General Meeting of Shareholders. Mr. Nishikawa satisfies the Independence Determination Standards for Independent Officers set forth by the Company. 18 Name Reasons for Appointment Audit and Designation Supplementary Supervisory as Explanation of Committee Independent the member Director Relationship Yusaku Kurahashi ○ ○ — member) in the belief that he Mr. Kurahashi has been engaged in lawsuits and other dispute cases, M&A, corporate restructuring, and corporate legal affairs as a lawyer, and has broad experience, including participating in third-party committees in corporate scandal cases. The Company appointed him as outside director (Audit and Supervisory Committee would leverage his extensive specialized knowledge to enhance the Company’s corporate governance and other matters, and he was elected in the 31st Ordinary General Meeting of Shareholders. Mr. Kurahashi satisfies the Independence Determination Standards for Independent Officers set forth by the Company. [Audit and Supervisory Committee] Committee’s Composition and Attributes of Chairperson Audit and Supervisory Committee All Committee Members Full-time Inside Outside Members Directors Directors Chairperson 3 1 0 3 Outside Director Appointment of Directors and/or Staff to Support the Audit and Appointed Supervisory Committee 19 Matters Related to the Independence of Such Directors and/or Staff from Executive Directors The Company has employees who concurrently serve as staff to support the Audit and Supervisory Committee. The appointment, transfer, evaluation and the like of the staff are determined upon consultation with the Audit and Supervisory Committee to ensure independence from directors who are not Audit and Supervisory Committee members. Cooperation among Audit and Supervisory Committee, Accounting Auditors and Internal Audit Departments The Audit and Supervisory Committee is composed of three directors who are Audit and Supervisory Committee members (all of whom are outside directors). The Committee determines policies on audits and other related matters in accordance with the regulations of the Audit and Supervisory Committee, and prepares audit reports upon receiving reports from Audit and Supervisory Committee members, directors who are not Audit and Supervisory Committee members, and the accounting auditor. As for internal audits, the Internal Auditing Office, which is placed directly under the president and composed of five members, conducts store and department audits focusing on operational efficiency/appropriateness and risk management. The results of these audits are shared with the Audit and Supervisory Committee to recognize issues. Internal audits are also conducted on subsidiaries. [Establishment of Optional Nomination/Remuneration Committee] Establishment of Optional Committee(s) Corresponding to Nomination Committee or Remuneration Committee Appointed Committee’s Name, Composition, and Attributes of Chairperson Optional Committee Corresponding to Nomination Committee Optional Committee Corresponding Nomination and Compensation Committee Nomination and Committee’s Full-time Inside Outside Outside Name Members Directors Directors Experts Other Chairperson All Committee Members 4 2 1 3 0 0 4 2 1 3 0 0 20 Outside Director Outside Director to Compensation Remuneration Committee Committee Supplementary Explanation The Nomination and Compensation Committee composed of all independent outside directors and the Representative Director (President and CEO) is established to strengthen the independence/objectivity and accountability of Board functions related to appointment and remuneration of directors. The Company’s Nomination and Compensation Committee serves as both a nomination committee and a compensation committee. The Committee is held quarterly in principle, and is to be convened by the chair as necessary. Specific matters to be deliberated at the Nomination and Compensation Committee are described in the Corporate Governance Policy of the Company. https://www.united-arrows.co.jp/corporate/governance.html (Japanese only) [Independent Directors] Number of Independent Directors 3 Matters relating to Independent Directors — [Incentives] Supplementary Explanation Incentive Policies for Directors Performance-linked Remuneration, other The Company has introduced a restricted stock compensation scheme for the directors who are not Audit and Supervisory Committee members with the objective of sharing value with shareholders and establishing a remuneration framework that contributes to higher corporate value over the medium to long term. Recipients of Stock Options Supplementary Explanation — 21 [Director Remuneration] Disclosure of Individual Directors’ Remuneration No Individual Disclosure Supplementary Explanation other documents. Policy on Determining Calculation Methods Remuneration Amounts and Appointed Total amounts of remuneration by director category are disclosed in securities reports and Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods The Company positions director remuneration as incentive for achieving sustainable growth and higher corporate value over the medium to long term in line with the Company Policy. The remuneration of executive directors consists of a monthly fixed “base compensation,” “bonuses” that is linked to single-fiscal-year business performance, and “stock-based compensation” that is set according to the level of achievement against the medium-term For base compensation, a director remuneration table according to position is set out by referring to such information as industry standards and the results of director remuneration surveys by external research organizations. Remuneration recommendations are calculated according to the roles and responsibilities of each Director within the corresponding range in business plan. the table. For bonuses, after putting forward a proposal for the total amount of director bonuses, a proposal for allocations of bonuses to individual executive directors is determined. The proposal for the total amount of bonuses is determined based on a comprehensive review of management ratios such as consolidated operating cash flow and ROE, in addition to the degree of meeting the initial plan figures for operating performance, especially consolidated operating income, over any given single fiscal year. Allocations to individual directors are determined in such a way that a higher-ranking director in the director remuneration table will have a higher bonus coefficient (i.e., the ratio of bonuses to the sum of base compensation and bonuses). The objective of this is to strengthen their commitment to achieving management targets over any given single fiscal year. In principle, no bonus will be paid if consolidated operating income is below a certain level against the initial earnings forecast. Stock-based compensation in the form of “restricted shares” is granted to executive directors with the objective of sharing value with shareholders and establishing a remuneration framework that contributes to higher corporate value over the medium to long term. Transfer restrictions on the restricted shares will be removed if targets under the medium-term 22 management plan are met within a fixed transfer restriction period. The shares are to be unrestricted according to the degree of achieving the targets. Bonuses and stock-based compensation will not be paid to non-executive directors. Only base compensation will be paid to them according to their individual roles and responsibilities. The remuneration of each director who is not an Audit and Supervisory Committee member is determined in accordance with the policy described above by resolution of the Board of Directors within a range set by approval of a Shareholders Meeting. The Nomination and Compensation Committee is consulted before determining the remuneration. The remuneration of each director who is an Audit and Supervisory Committee member is determined in accordance with the policy described above by resolution of the Audit and Supervisory Committee within a range set by approval of a Shareholders Meeting. In addition to the above, the Nomination and Compensation Committee examines the appropriateness of the policy, structure, and remuneration table and calculation rules on director remuneration and puts forward revision proposals. [Support System for Outside Directors] The Company has employees who concurrently serve as staff to support the Audit and Supervisory Committee that is mainly composed of outside directors. To ensure effectiveness of instructions given to the aforementioned staff by Audit and Supervisory Committee members, we give the necessary investigation authority to the staff and put in place a system of cooperation by departments. Board of Directors meeting materials are sent to outside directors by the day before each meeting. In addition, outside directors check sufficient information other than Board materials by referring to meeting minutes provided by secretariats of key meeting bodies. [Status of Persons Retired from Office of Representative Director and President or the Like] Names and other details of counselor, advisor or the like who are former representative directors and presidents or the like Updated Name Description of duties Position/ title conditions retirement Term of (e.g., full-time/ as president, office Working arrangements/ Date of part-time, paid/ etc. unpaid) Osamu Shigematsu Chairman types of advice to Part-time, paid 1 year March 31, 2012 1. Providing various directors of the 23 Company (not involved in management) 2. Providing advice on improving corporate culture, corporate loyalty, and creativity 1. Providing various types of advice to directors of the Company (not involved in management) 2. Building good relationships with stakeholders such as industry groups and business partners 3. Advising on brand business Mitsuhiro Takeda Counselor Part-time, paid 1 year March 31, 2021 Total number of counselors, advisors or the like who are former representative directors and presidents or the like Updated 2 Other Matters The Board of Directors deliberates on and decides any new appointment of a person who has retired from the office of representative director and president or the like to the position of advisor and other. Upon expiration of the term, we will renew the term as necessary. 2. Matters Related to Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) With approval by the 27th Ordinary General Meeting of Shareholders held on June 23, 2016 for amendments to the Articles of Incorporation associated with transition to a Company with an Audit and Supervisory Committee, the Company transitioned to a Company with an Audit and Supervisory Committee. (1) Board of Directors The Board of Directors is composed of six directors (including three outside directors) and in principle meets once a month. Board meetings are attended by directors who are not Audit and Supervisory Committee members and directors who are Audit and Supervisory Committee 24 members. The Board of Directors makes decisions on matters prescribed by laws and regulations as well as important matters set forth by internal rules such as the Board of Directors regulations. It also monitors and supervises the status of business execution. In addition, extraordinary Board meetings are held on an as-needed basis, and directors also have discussions with each other whenever necessary. As such, we have a framework in place for enabling efficient business execution. (2) Audit and Supervisory Committee The Audit and Supervisory Committee is composed of three directors who are Audit and Supervisory Committee members. The Committee determines policies on audits and other related matters in accordance with the regulations of the Audit and Supervisory Committee, and prepares audit reports upon receiving reports from Audit and Supervisory Committee members, directors who are not Audit and Supervisory Committee members, and the accounting auditor. The Audit and Supervisory Committee, all three members of which are outside directors, ensures transparency of management and assumes the roles of monitoring and auditing the Company as a whole. The holding of Company shares by Audit and Supervisory Committee members is described in “number of Company shares owned” in the “status of officers” of securities reports. They do not have any personnel, transactional and other interests in the Company. The Company establishes independence standards for outside officers and deems that any independent officers who satisfy the standards are sufficiently independent from the Company. The independence standards are described in the Corporate Governance Policy disclosed on the Company website. standards. https://www.united-arrows.co.jp/ir/strategy/governance.html (Japanese only) All of the three outside directors of the Company satisfy the aforementioned independence In addition, pursuant to Article 427, paragraph 1 of the Companies Act, the Company has entered into an agreement that limits liability for damages under Article 423, paragraph 1 of the same Act with each Audit and Supervisory Committee member who is a non-executive director. The maximum amount of the liability for damages under the agreement is the amount prescribed by laws and regulations. (3) Nomination and Compensation Committee Details of the Nomination and Compensation Committee are described in the Supplementary Explanation in “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” – “1. Organizational Composition and Operation” – [Establishment of Optional Nomination/Remuneration Committee]. (4) Executive Officer System The Company adopted an executive officer system on July 1, 2008, with the aim of ensuring the prompt execution of operations and enhancing the decision-making and supervisory functions of the Board of Directors. On April 1, 2021, in order to operate this system more effectively, the Company redefined the role 25 of executive officers and changed the contract form between the Company and executive officers from the previous so-called employment-type to delegation-type contracts. (5) Internal Audit Departments As for internal audits, the Internal Auditing Office, which is placed directly under the president and composed of five members, conducts store and department audits focusing on operational efficiency/appropriateness and risk management. The results of these audits are shared with the Audit and Supervisory Committee to recognize issues. Internal audits are also conducted on subsidiaries. (6) Status of Accounting Audit (i) Name of audit corporation Deloitte Touche Tohmatsu LLC (ii) Continuous audit period 14 years (iii) Names of certified public accountants who executed the services Mr. Tsutomu Hirose, Designated Limited Liability Partner, Engagement Partner and Certified Public Mr. Hayato Otsuji, Designated Limited Liability Partner, Engagement Partner and Certified Public Accountant Accountant (iv) Composition of assistants related to audit services The composition of assistants related to the audit services comprises four certified public accountants, three persons who passed the CPA examination, and seven others. 3. Reasons for Adoption of Current Corporate Governance System As described above, the Company is a Company with an Audit and Supervisory Committee. We believe that this corporate structure with an Audit and Supervisory Committee is an appropriate corporate governance system that will help to enhance the Company’s corporate value over the medium to long term. We believe it will do this by strengthening the Board’s monitoring function and expediting decision-making through appointment of outside directors who do not execute business and appropriate delegation of authority. 26 III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Shareholder Meetings and Ensure Smooth Exercise of Voting Rights Updated Early Notification of We dispatch the notice of a shareholders meeting about three General Share